AA says car insurance falling but home insurance costs rise

The latest quarterly report into the cost of car insurance from the AA shows that car insurance premiums have been falling in the third quarter of 2012 but home insurance has been rising in cost.

The Shoparound Index shows that car insurance premiums bought directly from an insurer fell by 2.9 per cent in the quarter but have risen by 5.6 per cent since the end of September 2011. The average UK car insurance premium now costs £844.

A similar survey conducted that looks at the cheapest premiums available through price comparison sites suggests that the average premium has fallen by one per cent in the third quarter and now costs £612, a drop of 2.3 per cent in the last 12 months.

Simon Douglas, director of AA Insurance said: “Competition is tough in the insurance market, forcing many companies to reduce premiums despite the fact that costs show little sign of abating.  Nevertheless, some are still increasing premiums.”

The industry has pledged to combat fraudulent whiplash claims after a recent report by the Institute of Actuaries found that personal injury claims management companies had increased their income by 21 per cent in 2011 with the average whiplash claims paying out £8,400 and costing the industry £400 million.

Mr Douglas believes “the days of ‘open season’ for fraudulent injury claims, cash for crash and similar scams are numbered.”

Across the UK, Scotland is the cheapest place to buy car insurance with an average premium costing £438. Greater Manchester and Liverpool are the most expensive at £1,059. The north-west of England was described in the report by the Institute of Actuaries as a “hot spot” for fraudulent whiplash claims.

Every region in the UK saw a fall in car insurance premiums except East Anglia which recorded a rise of 1.4 per cent. Even young drivers saw prices fall. Young male drivers saw a fall of 0.7 per cent in car insurance premiums, down to £1,603, whilst young female drivers saw the cost drop by 2.2 per cent to £1,127.

However, home insurance costs rose overall after a summer of storms and floods. The Shoparound Index which takes an average of the five cheapest quotes for each property revealed an average rise of 2.4 per cent in the three months ending September 2012 for home buildings insurance to £181. Over the past 12 months the rise has been 5.2 per cent.

Every region in the UK reported a rise in the cost of home buildings insurance with Yorkshire and East Anglia seeing the biggest increase at 3.5 per cent to reach £177. London and the south east had the highest cost at £200, a rise of 2.9 per cent.

Wales and the West Country had the lowest home building insurance premiums at £157, a rise of 1.1 per cent.

Contents insurance went up by one per cent in the quarter to reach an average cost of £242 and by 7.2 per cent over the past 12 months.

The Environment Agency predicts that heavy rainfall will be three times as common in the coming years and that the cost of flood damage is likely to triple by 2030 pushing up building insurance premiums.

Mr Douglas called on the government to reverse the reduction in investment in flood defences.

He said: “I am very concerned that no agreement has yet been reached in finding an affordable option to the ‘statement of principles’ between the insurance industry and the Government, which ensures that families in flood-prone properties can continue to obtain flood cover.  This expires in June next year and if no agreement is reached soon, could lead to the most vulnerable homes becoming uninsurable.

“To put this into context, insurers measure flood risk in terms of events likely to happen over a period of years.  Even if a home is at risk of flooding once in a century, given that the average cost of repairing a flood-damaged property is £20,000 that is the equivalent of £200 per year, on top of the cost of covering other risks.”

“It’s vital that the Government and local authorities make tackling the problem at source by investing in flood defences a priority. It’s hard to think of a better return on investment.”